'Middle class is very upset, exempt all past equity': Ex-Infosys CFO Mohandas Pai's appeal to PM Modi on capital gains tax

Former Infosys Chief Financial Officer Mohandas Pai on Tuesday urged Prime Minister Narendra Modi to help the middle class by exempting all previous capital gains from the increased tax announced by Finance Minister Nirmala Sitharaman in the Budget 2024. In the Budget 2024, the Finance Minister increased the capital gains tax from 10 per cent to 12.5 per cent even as she extended the exemption limit by Rs 25,000 to Rs 1.25 lakh. 

The tax increase has upset the middle class, including a section of BJP supporters. Pai called this move a "thoughtless action". Tagging the finance ministry, he said: "You folks have broken the trust of the middle class. When tax changes pl grandfather all previous matters except litigation for angel tax withdraw prior litigation." 

"PM @narendramodi pl help, the middle class is very angry and upset at this," he wrote, adding that when capital gain tax was introduced by former finance minister Arun Jaitley, all past equity value was grandfathered and protected. 

Pai's request came after a social media handle said that there was an overwhelming sense of betrayal among the taxpayers because it was not just a tax hike but a breach of a promise. 

"Why is there such an overwhelming sense of betrayal among the taxpayers, most of whom have been the core supporters of BJP, and of PM Modi in particular? Because this is not just an increase in Taxes, this is a breach of a promise. A promise of no retrospective amendment and of tax stability," the post said. 

"That trust has been broken by PM Modi with this abrupt change that does now allow people a chance to exit their investments based on the existing method," it added. 

The post also added that in 2018, when the Modi government brought back the LTCG tax on equities, it did grandfather the accumulated gains, making the change prospective. "This time no such option has been provided. I appeal to the good senses of this Govt to allow for a limited time (say until 31st Mar 2026) to be able to exit currently held real estate assets under the old regime of indexation benefit and 20% tax."

In the Budget 2024, Sitharaman proposed the removal of the indexation benefit for homeowners, which allows them to adjust property prices for inflation, impacting India's real estate sector. Indexation adjusts asset purchase prices based on inflation, reducing taxable gains. However, the removal of this benefit may increase the tax burden for sellers. The new LTCG tax rate is 12.5 per cent, reduced from 20 per cent but without indexation benefit.